Nifty Index Investing Newsletter [11th May 2024]
What to do in current market scenario ? SIP or Lump sum ?
Markets this week were pretty rough as we can probably notice from the Nifty chart and market breadth table below. We started the week with ~50% stocks above 21 DMA, now we are at ~30%. Similarly for 50 DMA, we started with ~63% stocks above it and now we have less than 50% stocks above that metric.
Along the way, we tested 21 DMA and 50 DMA. As of now, so support seems to be taken at those levels. A bit of pullback was seen on Friday with that being the best day of the week with 0.44% gain on the index and Thursday being the worst one with loss of 1.55%. Another support should kick in around ~21780 level, if we go below that with volumes, overall trend is expected to reverse. So a negative week for Nifty in which only 1 trading day ended positively.
Is it oversold now? Should one buy ? I certainly don’t know, but what we know is how to measure the data points we have been week over week and take decision accordingly as per our risk tolerance. :)
[Please note, I only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
World markets on the contrary we can notice to bounce back strong avoiding the 21/50 DMA crossover as mentioned last week. In fact we can clearly notice on the chart that world markets are in an uptrend and now testing their previous high. So the Nifty50 trend pressure that we are noticing as mentioned earlier looks likely to be fueled by something local, not global.
But as you know, we are not here to predict what happens, we are here to understand if its time to press on the gas for lumpsum investments or just do our normal SIPs ;)
Let’s get to the meat of this week’s update and see how the Nifty Market Breadth Tables are looking now. Following are the links in case you missed the previous 3 updates :
20th Apr 2024
27th Apr 2024
04th May 2024
Even though the index has taken a beating this week, breadth is not that much affected when comparing week over week tables. So no lumpsum action required here. As mentioned in last week as well, we are in election month right now so volatility should be expected. If the index takes support and bounces back from 21780 levels, the breadth should improve, else I believe next week we might see a different picture of this above table.
Nifty500, Okay, I see it, yeah I do. Comparing week over week, there is an effect. Market breadth has worsened and that needs to be pointed out here. ~70% stocks were above 50 DMA as shared last week, now we can see that metric reduce to 50%. Net new highs as well have reduced from 160 to 143. One more week like the one we had, and we will be seeing a red cell that will trigger a lumpsum event for us. So keeping tabs on this to see if this turns red anytime during the week.
Just like Nifty500, Similar trend for MicroCaps as well. Around 70% stocks were above 50 DMA and now we have less than 50% stocks above that metric. One more bad week, and lumpsum event triggered. Even though I understand this index has to be more volatile as its at the end of the spectrum with smaller companies, its good to see the correlation holding up within the MicroCaps and Nifty500 as a whole.
Maybe its a sign of things to come, maybe not. All we can do it read the table week over week and press on that beautiful app on our smartphones to buy more units for our passive investments ;)
[Give it time, these numbers will become second nature once you keep looking at it every week]
So, my fundamental rule here is “red cell in the row” be aggressive and buy lumpsum ELSE keep the monthly SIP rolling as per plan…
Based on the above rule, I’ll be taking the following steps as a summary :
Nifty 50 → Keep the regular SIP. No lumpsum required.
Nifty 500 → Keep the regular SIP. No lumpsum required.
Nifty MicroCap 250 → Keep the regular SIP. No lumpsum required.
As always, I’ll be sharing weekly updates with the above tables and it will slowly become apparent when can one be aggressive or when can one continue with SIPs. As long as data gives comfort to invest big, that’s all we need it for. Removing emotion from SIPs is the best thing a passive investor can do. And investing big lumpsum amounts when the time comes will be like a rocket fuel to overall corpus.
For reference, in 2023, One could have been aggressive with lumpsum investments in Jan-Feb-Mar-Apr-Nov as per data in the above tables. This would have resulted in better returns when we consider investing in the Indexes (whether it be Nifty50, Nifty500 or Nifty MicroCap250).
Intention here is to average out fund units when turbulence hits. This way we lower our average purchase price more aggressively than when done with SIPs.
Please note, this strategy is usable only when one believes the India story and want to be part of India’s growth. If India has to grow and become a bigger economy, then Indexes like Nifty50, Nifty500 & NiftyMicroCap250 have to go much higher from here.
Covering Top 750 stocks (Nifty 500 and NiftyMicroCap250) is more than enough for the passive investor, going beyond that becomes too risky as liquidity is not supportive much.
Have a great week ahead and Happy Investing :)
[Disclaimer: The information in this article is for informational purposes only and is not financial advice. The author is not a licensed financial advisor. Readers should conduct their own research and consult with a qualified professional before making any financial decisions.]